Aptech Limited

In the last two months we have seen the market capitalization of IT companies falling drastically. A look at the valuations of IT training companies shows that they have fallen by more than 50 per cent.

As regards Aptech, the fall has been the highest as can be noted from the above table. Infact, it has recovered somewhat in the last few days otherwise, its valuation had gone down still lower. As we noted earlier, there has been a concern about the merger of its group software company i.e. Hexaware and here we make an attempt to profile the business of Hexaware to bring the picture to investors about how good a company Hexaware is.

Established in 1991 Hexaware Technologies is an ISO 9001 and SEI CMM Level 5 certified company. It is a non-listed group company. The company has an equity base of Rs 15 crs divided into face value of Rs 5 per share.

* Face value of Rs 5 per share.

The above financials are that of Aptech Ltd., as a single entity before any de-merger. As can be seen from above, the company has grown its profits well but the topline growth is lower compared to most companies growing handsomely at 80-100 per cent in the same time period. We believe, this slow growth is more due to a lagging education business at Aptech, while both NIIT and SSI have become more aggressive. The education business is also fast becoming commoditised and hence it would be a weak link for Aptech in time to come. Its financials are impressive on a standalone basis but when looked in comparison to that of NIIT and SSI, they are dwarfed.

Currently, the valuation of Aptech Ltd is low in absolute and relative terms. This is mainly due to the sluggish working of the education division. The attempt of de-merging software business and then merging it with Hexaware is to create better shareholder value in future.

We believe that the current valuations accorded to the company dose not truly reflect the value of its software division, which is being clobbered by its software training division. Its software development business deserves a better valuation, which we feel would be achieved once the de-merger of both the divisions take place.

Thus, at the current valuations one who is an investor , is invested more into the education business of the company. In any case, if he wants to invest in the education business, he should be more looking to invest in an efficient business of NIIT for investment and can re-stage his entry into the newly formed software business of Aptech, as and when the exercise is complete.